Community Health Systems struggles to grow amid drop in patients

Stock downgraded over merger worries

Sep. 10, 2013

Written by

Shelley DuBois

The Tennessean

Over the past several years, hospitals have faced a growing problem because of the recession and a meager recovery — fewer people are visiting the hospital, and those who come are spending less time.

That was on display yesterday at the Morgan Stanley Healthcare Conference in New York, which featured a presentation by Franklin-based Community Health Systems, which owns, operates or leases 135 hospitals in 29 states.

CHS (NYSE: CYH), like other major hospital companies, is trying to figure out how to continue growing profits amid this slowdown.

According to the company’s second-quarter 2013 earnings release, for instance, inpatient admissions were down 5.1 percent compared with a year ago.

“The (volume) drops have been going on since 2009,” said Larry Cash, executive vice president and CFO. “Most companies have had it — some disclosed it, some have not.”

Health-care providers like CHS have traditionally aimed to grow volume, meaning the number of patients that come through hospital doors. But ever since the economic downturn, fewer people have sought treatment in hospitals. They also stay for less time, says Beth Woodard, an associate professor of management at Belmont University.

“What we’ve seen is the shift of inpatient hospitalization to ambulatory outpatient facilities,” Woodard said. She also said that technology has helped reduce the length of stay for many patients as well.

While that can be good for patients, since most would prefer to recover at home, those trends have forced providers to tweak their business models.

“We’ll have to learn how to make money off those outpatient visits,” Cash said.

CHS is not alone.

“All these hospitals are investing money to expand their presence in the outpatient side, be it physician practices, surgery centers, home health, etc.,” said Brian Tanquilut, a health-care services equity research analyst for Jefferies. That’s partially because those outpatient services cost less, and more affordable procedures will attract more patients.

And concerns about patient volume are troubling certain health-care investors, too. On Monday, Citigroup analyst Gary Taylor downgraded shares of CHS stock, based on concerns that the company’s $7.6 billion merger with Health Management Associates could add to the company’s debt amid those concerns about patient volume.

Cash, however, remained optimistic about CHS’ financial future, saying he expected better volumes in 2014 than in 2013.

He also said he expects the HMA transaction, which would add 71 hospitals to CHS’ network, to wrap up successfully. If all goes well, the deal could close during the first quarter of 2014, Cash said.

Shelley DuBois reports on the business of health care. She can be reached at 615-259-8241 or sdubois@tennessean.com. On Twitter: @shelleydubois.